Clear Eyed Capitalist

Archive for October, 2005

For Economics, we have a number of assignments in an online system called Aplia. It’s traditional economics (don’t want us to be too far from the mainstream) and its very fun online. We get supply and demand ‘curves’ (they’re always straight lines) that we can move, price points we can slide up and down and fun calculators where we can tweak prices or costs and watch the supply and demand shift around. However, it’s also economics with all the usual obsession with the superiority of the invisible hand and the grossly simplified examples and I’m starting to get a little annoyed. ‘If the student government were to impose a tax on campus concert ticket sales, compute with these simplistic equations how that affects the price of tickets and the quantity sold, and see how many students will get a suboptimal outcome of not being able to go to the concert.’ At least that problem later acknowledges that the money taken out of the market by the student government is likely to be spent on behalf of the students and so might still be a win for them.

‘Look at this market calculator of car sales that accounts for income, costs of inputs and taxes. If the government caps the price of car at 25K, how much of a market shortage of cars will there be? There WILL be an undersupply, because car makers won’t be able to meet their “reservation” price on the supply curve that motivates them to fulfill the demand.’ How about: if the government does not cap the price of cars, how many customers are unable to buy a car because they’re priced out of the market? If the government does cap the price, how does that number change compared to the amount of undersupply? How is the class distribution of car-ownership changed assuming all buyers who can afford a car at the current price have an equal opportunity to purchase one?

‘If the government increases tuition subsidies for students, what will happen to tuition prices?’ The correct answer: they will rise, because demand will rise, because demand is a combination of desire and ability to pay and increased subsidies will be an increased ability to pay. The implied answer: government tuition subsidies are pointless. How about: what’s the socio-economic composition of the pool of students able to pay for college before government subsidies? How does that change after government subsidies? Which pool of students is likely to produce a more talented class-sized subset?

GAH!

For Sustainable Business one of our assigned readings was the 2005World Development Report. It’s an incredible document. It’s huge, but if you just read the intro and skim through and read the chapter summaries it lays out everything I’ve come to understand about the world, the economy and inequality over the last several years. It’s put out by the World Bank, which I suspect most international folks view as a “western” or US institution. From their site “The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary.”
I feel like I suddenly have a glimpse into what a baffling experience it must be to immigrate to the US as an educated person from a developing country. Back home, the local voice of the US and your experience say: “An equity lens enhances the poverty reduction agenda. The poor generally have less voice, less income and less access to services than most other people.” “Good economic institutions are equitable in a fundamental way: to prosper, a society must create incentives for the vast majority of the population to invest and innovate.” “There will be social conflict over the institutions of society and incentives for people who control power to shape institutions in ways that benefit them”. And yet here within the US, we’re clueless on such social issues and are busily dismantling our equity-enhancing social programs and reinforcing the right of the rich to get richer. What a disappointment we must be.

Sorry for the long delay. Every friday night of intensive we have a public lecture. Our next one is Friday, November 4th. You can walk onto the Bainbridge Ferry and get a taxi to islandwood and come here the lecture. Nov 4 will be about the business case for sustainability. Check out the website: www.bgiedu.org

Our friday sepaker in October was Sheryl O’Loughlin, CEO of Clif Bar. She was fascinating, because Clif is an incredibly exciting company. Clif measures 5 bottom lines: the business, the brand, the employees, the community and the planet. They’re still working on metrics for all of them, but it has lead the company in amazing directions and I’m really psyched.

For me the most interesting part of her talk was when she referred to “natural demand”. Clif believes in serving natural demand – if customers want it and it’s good, they’ll buy it. You shouldn’t need to “create” demand with big expensive marketing campaigns. So they don’t. The spend less on marketing and they grow more slowly and they think it’s a good tradeoff. I wonder if that’s the kind of thing I’ll read about in Natural Capitalism. It makes sense – that’s the invisible hand at work right there – if it’s good and customers want it, they’ll buy it and word will get around. This concept that we can so blanket people with advertising that we can “create” demand is anti-capitalist. Capitalism is as much about the flow of information as it is about the flow of cash and this is a point I will return to. I think we will find that I actually am a super capitalist; the problem is our current markets aren’t actually competitive and poor flow of information is just one of many reasons why.

Sustainable Development is development that “meets the needs of the present without compromising the ability of future generations to meet their own needs.” Developed at the World Commission on Environment and Development in the 1987 report Our Common Future.

The organization Business for Social Responsibility defines corporate social responsibility (CSR) as “achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment.” We [BSR] also say that CSR means addressing the legal, ethical, commercial and other expectations society has for business, and making decisions that fairly balance the claims of all key stakeholders.

Starbucks defines CSR as “conducting business in ways that produce social, environmental and economic benefits to the communities where they operate. Starbucks has been widely recognized for its commitment to numerous stakeholders including coffee growers, the environment, employees, and communities, while simultaneously achieving rapid financial growth.”